Board Adopts Ad Hoc Funding Adjustment
On July 17, 2014, the Board of Fire and Police Pension Commissioners approved the Plan actuary’s recommendation to make an ad hoc adjustment to its actuarial funding policy for the recognition of deferred investment gains and losses. This adjustment will result in more stable funded ratios and more level City contribution rates to the fund over the next several years.
The Board’s current funding policy for the plan utilizes an asset smoothing method, which is an actuarial technique that spreads the recognition of investment gains or losses over a period of 7 years for the purpose of determining the Actuarial Value of Assets. The recommended ad hoc adjustment is within model actuarial practice and is designed to reduce the volatility of the original pattern of deferred investment gains and losses.
The total net deferred gains and losses as of June 30, 2013, which total $77,259,408, will be recognized under the schedule below:
The ad hoc adjustment recognizes the same total net deferred gains/losses over the same period of time. The intent was not to change either the amount of or the period of the recognition for the deferred gains/losses. This ad hoc adjustment was adopted specifically to address the situation where large investment losses are followed by large gains. The City will still be billed for the entire required contribution each year, just in a more level pattern. At the end of the remaining smoothing period for the current net deferred gains, the contribution rates under the current policy and those under the ad hoc adjustment end up at approximately the same level. The graph below provides an illustration comparing the current method and the ad hoc method adopted by the Board: